ACB VN_Safe haven in the storm

BUY

TP upside (downside) +24%
Close 20 Aug 2020
Price                VND 20,800
12M Target     VND 25,690

Company profile: ACB is a fundamentally solid bank with strong capital ratios and asset quality. It regularly achieves a high ranking in our CAMEL framework rankings. It is primarily a retail-focused bank, with 60% of total loans attributable to individuals and 31% to SMEs in 2019A. Management plans to switch its listing from the HNX (Hanoi) to the HSX (HCMC) this year.

Safe-haven in the storm

Listing on HSX. ACB plans to list on HSX in 2020E. If this goes through, there will be a high chance that ACB’s shares will be included in important indices with relatively high weights. Management believes that its weightings could be as high as 4% on the VN30 Index, 10% on the VN Diamond, and 12% on the VN FinLead. Regardless of the actual index weightings, the move should boost ACB’s trading liquidity.

Potential upfront fee of VND2-3 tn (US$86-129m) from bancassurance exclusivity deal. Unlike many of its peers, ACB has not yet signed an insurance distribution exclusivity agreement. We believe that ACB will reach a deal in 2020 or early 2021. We have not factored the expected upfront fee from the deal into our model given the lack of visibility, but this implies potential upside to our (and the Street’s) earnings forecasts.

Solid balance sheet. ACB’s NPL ratio of 0.68% as at 2Q20 is the lowest of any listed bank, and its loan loss reserve (LLR) ratio of 144% is the second highest among the banks. ACB’s CAR ratio (Basel II) was 11.0% as at 1Q20, which is far above the minimum requirement of 8.0%.

Yuanta vs consensus. Our 2020E earnings forecast is basically in line with the consensus, but our earnings forecast for 2021E is 17% higher than the Street. Although earnings are under pressure for all the banks, we expect ACB to outperform the sector operationally given its solid asset quality and capital, which should allow it to outgrow its peers.

Cheap valuation – Initiate with BUY. ACB trades at 1.2x 2020E P/BV with 2020E ROE of 19%. We believe that ACB deserves a premium to its peers given its asset quality strengths. Our target price of VND25,690 implies 24% 12-month TSR, and we believe the stock offers value even after factoring in the FOL premium of about 7-9%.

For the complete report, please access here: ACB_Initiation_Aug_2020

Analyst: Tanh Tran, tanh.tran@yuanta.com.vn